Most people who have some interest in U.S. politics or economics know that Social Security is a ticking time bomb. It seems like every year we hear time line revisions indicating its collapse will be sooner and sooner. Like a bomb, it's also highly volatile. It's one of those problems that everyone knows exists, but given the strength of the senior vote, virtually all politicians are too scared to even attempt to offer legitimate solutions.
But there's a new problem with Social Security, other than the path it's on, which has gotten some press recently. Unlike the larger issue, this one could be easily fixed -- assuming it is a real problem.
As it turns out, this year, since the Consumer Price Index indicated mild deflation, seniors will not get their usual cost-of-living increase. This has advocate groups for seniors like the AARP complaining. Bloomberg reports:
The consumer-price index "doesn't accurately reflect what seniors buy day to day," Christina Martin Firvida, director of economic security for AARP, the biggest advocacy group for older Americans, said in an interview. The group would "absolutely" support a better measure for gauging retiree expenses, she said.
So why doesn't the CPI do the job? The claim is that out-of-pocket medical costs for seniors are still increasing, and that's not reflected properly by CPI. So what solution do we hear from Washington?
President Barack Obama has proposed spending $13 billion to give Social Security recipients $250 apiece . . .
I'm not here to argue against that CPI does a poor job of evaluating the costs seniors face. I actually think that's probably true. It's unclear if CPI even does a good of evaluating price level in general, so I wouldn't be surprised if it does a very poor job of determining cost-of-living changes for specific groups of Americans. But what I would like to assert is that this proposed solution doesn't address the real problem.
So what happens if deflation continues in 2010? Do we pass another "one-time" payment to seniors? Or what if CPI increases more than medical costs or whatever else drives seniors' cost of living? That would give seniors more than they actually need.
Obviously, the right answer would be to change the metric used to increase Social Security benefits each year to better reflect the costs seniors face. Why not take a few days or weeks and determine a better index/metric? That way, you can actually solve the problem, rather than just throw some money at it.
But as I mentioned, I suspect politicians are too scared to propose any Social Security reform, no matter how sensible. Why else would they propose such a lame, roundabout "solution" that would utterly fail to address the real problem?
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